Chris and I recently sat down with clients Alexis and Bryant do a deal analysis on their first investment property. I helped them find a duplex in Englewood that allows them to house hack without sharing space.

They got started investing in real estate by listening to the podcast and absorbing as much information as they could.  This helped them figure out the right strategy for their lifestyle and goals. 

Investor Profile

Alexis and Bryant were interested in buying a property but realized they didn’t know where to start.  They began listening to our podcast to learn more about investing. Once they were ready to look for a property, they reached out to us.

They learned about different investing strategies and liked the idea of house hacking. However, they’re not at a point in life where they want to share their living space. The duplex works well for them because it gives them the benefits of house hacking without the trade off of losing personal space.

Their long-term goal is to have enough income from their real estate investments to live comfortably.  They plan on getting to that point by using a combination house hacking and Nomad strategy.   

Investment Property Details

Appealing Features of the Property

This is a centrally located duplex in Englewood that has two units with a two bed/one bath layout.  One unit is larger than the other, but the smaller unit has an attached two car garage.

Alexis and Bryant are choosing to live in the smaller unit. They don’t don’t need as much space, and they can get more rent from the larger unit.

How Was the Property Sourced?

I set up MLS searches and alerts for properties that fit their goals. This was the first property they saw, and it checked all of their boxes. This property was so good, in fact, that I planned on sharing it with other clients if they didn’t act on it.

Property Contract Details

Contract

Originally, the property was listed at $525K and went under contract at $600K.  After the financing fell out at the last minute, the property went back on the market at $575K.  Alexis and Bryant were able to get under contract for $580K. 

Alexis and Bryant were understandably nervous to go under contract for the first property they saw. I explained them to them how buyer-friendly Colorado real estate contracts are and how they would have multiple opportunities to back out.  That made it easy to keep going through the process knowing they weren’t necessarily locked in. 

Inspection Issues

Overall, the property was in great shape, but it had some deferred maintenance that was kicked down the road.  The roof had significant hail damage, the interior retaining wall wasn’t in good shape, and the sewer line needed repair. We asked for concessions, which the seller wasn’t initially amenable to.  He was a hard negotiator and didn’t like the idea of being under contract a second time for $20K less and concessions.

At the end of the day, though, we knew he wanted to sell.  I talked with Alexis and Bryant to find out at what point they would be ready to walk, which helped me negotiate better and play hardball. 

They were able to get $20K in seller credits, which is money that they get at the closing table.  These credits can’t go toward the down payment, so they must be applied to either closing costs or vendors.  In this case, they used the money to pay for the roof repair and put the rest towards closing costs.

Property Financing Details

I used the Rental Property spreadsheet to run the numbers on this home.

Property Overview

Alexis and Bryant used an FHA loan that allowed them to put down 3.5%, which made their all-in cash to close $20K. 

They’re living out their HGTV dreams with their DIY cosmetic upgrades, such as a new IKEA kitchen, LVP flooring, and painting.  Once they started living in the property, they realized the shoddiness of the previously completed improvements. They’re saving money in the long-run by fixing them now.  I helped them get in touch with contractors for improvements that were out of their depth, particularly plumbing and electrical work. 

Between local comps and rising rent rates, they are hoping to get $2K for each unit after they move out.  They plan on self-managing unless they end up moving to another part of town.  The property came with tenants when they first bought it, which allowed them to experience the drawbacks of self-management under someone else’s lease terms.  This gave them a better idea of what they will and won’t include in future leases. 

Property Operating Expenses

They have the opportunity to institute a bill back for utilities on top of rent that will save them some money.  This is a good way to keep the listed rental rate at exactly $2K but still cover the cost of utilities in a way that tenants think is fair.  We ran the analysis assuming the $2075 includes the bill back. 

First Year Returns

If they rent out both units and self-manage the property, their annual cashflow is $9401, and the cap rate is 6.4%.  Even if they rent out the units for$200 less and pay for property management, they would still cashflow at about $3K a year.

Alexis continually updated the spreadsheet throughout the process but didn’t expect the numbers to look so good. 

It’s important to keep in mind that in reality, they won’t get these exact returns. The spreadsheet gives investors the chance to run different scenarios to get an idea of a range of options.  When Alexis initially ran the numbers, they got a negative cashflow the first year, but the long-term value was great.  They can play around with different scenarios to help them decide their next move. 

The Next Property

By mid-2022, they want to be in the process of looking at their next property.  Since Alexis and Bryant can only have one FHA loan at a time, it’s good they’re thinking strategically about their financing options now.  They may have the option to put 5% down with a conventional loan, which many of our house hacking clients do. 

Connect with Alexis and Bryant

After hearing all of the horror stories about the Denver real estate market, Alexis and Bryant were hesitant to get started.  Now that they’ve gone through the process and are living in the first property they put in an offer for, they wish they’d started sooner. 

Alexis’s advice for first-time homebuyers is to talk to a financial planner or investment team who can really break down the different options.  Before she started listening to the podcast, she didn’t know that buyers can put down less than 20%, which would have helped her start investing earlier. 

Bryant echoes that sentiment, telling would-be investors not to wait but start now.  He wishes he did this in his 20s, realizing he could have been renting his mountain home out instead of selling it. 

Alexis and Bryant are happy to network and talk to anyone who feels their story resonates with them.  Reach out to them via email at: [email protected].  

Connect with Us

If you want help figuring out your own strategy, reach out to us. We’d be happy to answer any questions and help you find the right property that matches your goals. 

YouTube Video

Living the HGTV Dream in an Englewood Duplex

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